The Hindu Business Line : Bangalore residential market witnessing a slowdown: Report

Bangalore, Sept. 25 The Bangalore residential market is experiencing a change in dynamics and an overall slowdown in purchasing activity, says the latest report from real estate services firm Cushman & Wakefield.

High prices, steep home loan rates and anticipation of a price correction have resulted in a wait-and-watch attitude among end-users.

There has been about 15-25 per cent drop in primary sales across micro markets over the past six months, the report adds.

One of the city’s prominent real estate brokers puts the dip in sales in the past few months at close to 40 per cent.

Mr A. Balakrishna Hegde, President, Karnataka Ownership Apartments Promoters Association, admits there was a lull in the market in the beginning of 2007, but adds that the market has got back its momentum.

“With high interest shown by the NRIs and the deposit rates coming down recently, there is a positive movement in the market. This trend is fuelled by the positive sentiments in the interest rate market.”

The Finance Minister asking the bankers to support real estate is also a welcome move, he says. The report says that the areas surrounding east/south-east corridor, a preferred location for IT/ITeS employees, have witnessed a relative increase in capital values due to the slow but steady secondary market.

North Bangalore too has been able to maintain its price run-ups propelled by the end-users’ and investors’ sentiments over the last six months.

In south, south-east and north Bangalore, prices have gone up marginally, Mr Hegde says. The Cushman & Wakefield report says that many projects launched by developers in South-East Bangalore during 2004 and 2005 are ready for occupation; this means increased availability of mid-segment apartments (between 1,200 sq ft and 1,600 sq ft). The rental values of apartments in this region have therefore stabilised and would continue to remain the same. Going by the number of villas and plotted developments in North Bangalore, it appears that this suburb is being positioned differently when compared to the high-rises in eastern and south-eastern suburbs.

Projects offering villas are priced anywhere between Rs 1.2 crore for mid-level market and upwards of Rs 2.5 crore for high-end users.

Developers are likely to boost the sales over the next 6-8 months with plotted developments, apartments with better amenities, premier positioning, innovative marketing and financing strategies, the report says.

With the new Comprehensive Development Plan finalised, developers are applying for fresh sanctioned plans to avail themselves of extra FSI and consequently the launch of projects may be deferred, it adds.

‘More scope for further growth’

According to Mr A. Balakrishna Hegde, President, Karnataka Ownership Apartments Promoters Association, 2005 and 2006 were excellent years for the real estate market in terms of sales, but 2007 has not been bad.

Bangalore rates are still not as high as Mumbai, he says. Central Business District (CBD) rates in Mumbai (South Mumbai) are around Rs 40,000 per sq ft, whereas Bangalore CBD is around Rs 12,000 per sq ft. Rates for localities about 30 km away from Mumbai’s CBD are Rs 5,000-6,000, whereas in Bannerghatta Road and Kanakapura Road, just about 8-9 km from Bangalore CBD, rates are about Rs 2,500-3,200. “There is a great potential for further appreciation in the Bangalore market,” he says.

Increase in the number of jobs and rising salaries contribute to the growth of the real estate sector, Mr Hegde explains. The retail boom in the country is expected to create about 90 lakh jobs in the next five years, and Bangalore being one of the target markets for retailers, a majority of these jobs would be created in Bangalore thus fuelling the real estate market in Bangalore in the long run, he says.

The Government also plans to set up satellite cities in Bangalore and hence there is scope for further growth. The real estate broker says there are a lot of foreign funds waiting to be pumped into the sector, which, Mr Hegde feels, will ensure better quality of real estate, bring in newer technology and speed up construction process.

Budget-end market

There is a huge potential waiting to be tapped in the budget-end residential market too. Finding newer ways to cater to this segment — for example, by making the units slightly smaller — could help increase demand in this segment thus fuelling higher growth, Mr Hegde says. The Rs 35-50 lakh segment is the second largest in the market, where there would be a demand for more than 50,000 units in the next one year, he adds.

Currently, there are 1.4 lakh units under construction to be ready in the next three years spread across all segments. Hence, demand will be in excess of supply, and “as long as demand is greater than supply, there will be growth in this sector,” he adds.

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